A wide-ranging report on the state of the investment banking industry, coupled with news of fresh job cuts at Deutsche Bank, have combined to suggest tough times lie ahead for Europe's big trading banks.

The report comes just a day after it was reported that Deutsche Bank - one of Europe's largest trading houses - would cut around 500 jobs in its investment bank, with fixed income expected to be hardest hit.

Morgan Stanley and Oliver Wyman said in their report: "Our interviews make clear the US firms are pressing their advantage, particularly in relationship lending to support their broader franchises, and are winning share in the US.

"The Europeans, which are deleveraging, are ceding share. The intense competition from the US firms also keeps pressure on margins."

According to Morgan Stanley research, UBS lost 2.2% market share in fixed income in 2013, having decided to withdraw from certain corners of the market. Barclays lost 0.9% and Deutsche Bank 0.7%.

With both Barclays and Deutsche Bank facing balance sheet constraints, the two are "at a competitive disadvantage as they diet", according to the paper. The authors of the report also said the two banks were the farthest behind in taking decisive action to improve their return on equity.

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"Barclays in particular has not yet explained how it will ‘optimise’ its investment bank for the new paradigm of higher leverage ratios," they said.

"We think the market will struggle to afford Barclays the benefit of the doubt given very long-dated cost targets but not yet having shared a clear vision of what the bank will look like, nor milestones against which to judge progress."

In contrast, Deutsche Bank has delivered on its cost cutting, according to the paper. However, the challenge for the German bank will be shifting its leverage ratio at a time when it faces weak organic earnings growth, an uncertain litigation burden and requirements on subsidiarisation.